Tuesday, November 16, 2021

December 2021 Dividend Stock Watch List

As I'm writing this blog post in mid-November, we just received our first snowfall of the 2021-2022 fall/winter season here in Central Wisconsin. While that does mean I'll be spending less time outdoors as compared to the past six months, the good news is that temperatures have still been tolerable with highs in the upper-30s Fahrenheit. 

With that update aside, I'll delve into the intent of this post by outlining three dividend stocks that I'm strongly considering for next month.

Image Source: Pexels

Dividend Stock #1: Alliant Energy (LNT)

The first dividend stock on my watch list for December is Alliant Energy, which I wrote an updated article on for Seeking Alpha earlier this month for those interested in a more in-depth discussion of why I will be starting a position in the stock.

The first characteristic that drew me to Alliant Energy was its track record of 18 straight years of dividend increases (19 once its 6.2% dividend increase for next year is made formal in January). Alliant Energy's yield of just under 3% isn't particularly eye-popping to income investors, especially considering that its yield is about 15% below the electric utility industry. But with its low payout ratio by utility standards, Alliant Energy will almost certainly become a Dividend Aristocrat in 2028 while delivering annual dividend growth around 7%.

Second, Alliant Energy's financial positioning is relatively strong as well given that its interest coverage ratio in the first nine months of this year is 3.5.

Third, I estimate that Alliant Energy is trading at a reasonable valuation. This is the case even outside of the valuation models that I used in my Seeking Alpha article that demonstrated a slight discount, which are the dividend discount model and the discounted cash flows model.

Based on Alliant Energy's current $55.32 share price (as of November 14, 2021) and its $1.71 dividend payout per share planned for next year, its current 3.1% yield is essentially in line with its 13-year median yield of 3.2%.

Overall, Alliant Energy is a well-run electric and natural gas utility with a great balance sheet priced at a valuation that's a nice fit within my dividend growth stock portfolio.

Dividend Stock #2: Hershey (HSY)

Another stock of interest to me in the weeks ahead that I examined recently on Seeking Alpha is Hershey.

Why am I sold on Hershey?

I would encourage interested readers to check out my article on Seeking Alpha for a more detailed case for Hershey, but it boils down to the following three reasons:

Hershey is a Dividend Contender with 12 years of dividend increases under its belt. And with a dividend payout ratio expected to be in the upper-40 to low-50% range for this year, this leaves plenty of room for future dividend growth. This is further supported by analyst forecasts of 9%+ annual earnings growth over the next five years.

Secondly, similar to Alliant Energy, Hershey boasts a solid financial footing. This is evidenced by an interest coverage ratio that has improved from 10 through the first nine months of last year to nearly 15 year-to-date. In other words, profitability would need to plummet an unprecedented 90%+ or Hershey's interest expenses would need to soar many times over before the company would be at risk of insolvency.

And since I covered Hershey a few weeks ago, a marginally discounted stock has become even cheaper. That's because Hershey's stock has dipped over 2% since my article was published late last month. At $178.49 a share (as of November 14, 2021), the stock is priced at under 24 times next year's forecasted EPS, which isn't unreasonable given its growth potential. 

Hershey is worth every bit of $185 a share in my humble opinion, which opens the door for me to strongly contemplate buying the stock next month.

Dividend Stock #3: American Water Works (AWK)

The final stock on my radar is American Water Works, which I referred to in a Seeking Alpha article earlier this month as an exciting stock in a boring industry.

The key reasons why I am fascinated with AWK are as follows:

First, AWK's estimated dividend payout ratio for this year is the lowest that I've seen in the water utility industry in the mid-50% area. With impressive (for a utility and most industries for that matter) high-single-digit annual earnings growth potential, AWK should easily be able to build on its status as a Dividend Contender with 12 years of dividend raises.

Unsurprisingly, AWK's balance sheet is in an enviable position as well. The utility enjoys an A credit rating from S&P and also produced an interest coverage ratio of 3.5 through the first three quarters of this year.

At $171 a share (as of November 14, 2021), AWK isn't cheap at nearly 38 times next year's average EPS estimate, but a rapidly growing and steady water utility will never be as cheap as the value investor in me would like it to be. After years of overlooking this fact, I have come to accept that while AWK often looks expensive, it's best to dollar cost average into such a wonderful wealth compounder of a stock.

Concluding Thoughts:

As I'm building out my dividend growth stock portfolio, I'm leaning more on the names that I had ignored in favor of more value-oriented stocks through the early years of my investing career. This is demonstrated by the fact that none of the three stocks on my watch list for December are particularly enticing to a value investor.

But on the other hand, all three of the stocks I briefly discussed are of such high quality that they shouldn't rationally be trading at cheap valuations outside of extraordinary circumstances that would probably make other stocks cheaper in comparison anyways.


Are LNT, HSY, and/or AWK on your watch list for next month?

If not, what stocks will you be paying attention to in December 2021?

I appreciate your readership and welcome your comments in the section below!


  1. Wow, upper 30s for highs already. I knew it was cold up there but that's just bone chilling for this Texas boy. HSY is a great one and I hope to add more to it over time. It seems expensive, but not egregiously so. AWK and many of the water utilities have been great businesses and I can't imagine they'll be going anywhere since, you know, everyone needs water to live. You're right that it's probably best to DCA a set amount to it every week/month and then just add in bigger size on any pullbacks.

  2. Thanks for the support over the years! Texas sounds good to me right about now. I would absolutely hate it in the summer, though! Summers around here are hot enough for me, so I couldn't imagine what it's like down there.